What is Community Association Management?
Community Association Management or Community Management is a profession that offers administrative, technical, financial, and communal services to a jointly owned non-profit real estate entity. This profession is also called Condo Management, Strata Management, Body Corporate Management, HOA Management in North America and Australia and Owners Association Management in the Middle East and some parts of Asia.
According to Jeevan D’Mello, CEO of Zenesis Corp, UAE and considered the ‘Father of Community Management in the Middle East’, Community Associations – either residential, commercial, or mixed – administer, maintain, and enhance the common property and the wellbeing, safety, security, and lifestyle of the people living and working in them. Through such community living, people receive quality housing and workplaces at an affordable cost, with many amenities and services they would be unable to afford privately.
He says, “Community Associations have existed in different forms worldwide for hundreds of years. The number of such entities in the US has exploded in the past forty years, with 10,000 communities consisting of 700,000 units housing 2.1 million people in 1970. In 2010, 309,600 communities contained 24.8 million units and 62 million people. In the past 10 years the built environment in the Middle East, notably the UAE and Bahrain has dramatically changed with the enactment of new laws surrounding Community Associations (called Owners Associations in this part of the world) which has led to the birth of a new profession to manage these entities.”
Community Association Key Characteristics
According to the Community Association Institute (CAI), key characteristics of a Community Association include:
1. Mandatory Membership
Community Association memberships are not voluntary and are automatically given to the buyer when completing the purchase and registering the title with local authorities.
2. Mutually Binding Documents
Every Community Association has general and specific documents governing the entity, binding the owner to the association. Among many other things, these documents are uniformly enforced and contain rules and regulations applicable to all owners.
3. Mandatory Lien-Based Service Charges
Every owner must contribute service charges to administer, maintain, enhance, and carry out replacements within the association.
Some of a well-run Community Association’s key outcomes should be protecting, maintaining, preserving, and enhancing its common property, financial and brand values and the happiness and wellness of the people living and working in them.
Juan Carlos Alvarez, who owns Urbefincas based in Oviedo, Spain says, “A Community Association is like a little town, which needs to be governed by volunteers and professionals. The volunteers are members of the community who stand for elections and are appointed as a Board. They ensure the community’s policies, processes and rules are complied with. The professionals are the Community Association Managers who serve at the pleasure of the Board and run the day-to-day affairs of the entity.”
The rapid development of state-of-the-art infrastructure, buildings, and Community Associations created an imminent need for good management practices and qualified and experienced Real Estate Management Professionals.
Alicante-based Pepe Gutiérrez, who owns several companies including Administrapolis SL, Wesn International SAS and Megafincas Alicante SLP, says, “Owning a home is one of the top goals of every family and almost always the most valuable investment a person will make in his or her lifetime. It is therefore very essential that their properties are well taken care of from the very beginning and every facet of its management must be considered. We cannot focus on one to the detriment of the other, we must look at everything equally.”
Broadly speaking, the four areas of management are technical, financial, customer, and compliance.
Given the complexity of Community Associations being built around the globe, world-class Facility Management (FM) services are essential. FM is the process of operating, maintaining, repairing, and replacing common property.
As per CAI’s M-100 programs, maintenance has four goals in a Community Association*:
- Meet individual resident needs
- Preserve and enhance the common property
- Limit potential injury exposure to residents, guests, and employees
- Protect home or unit property values through successfully maintaining the common property
“The built environment consists of many technical assets and infrastructure that needs proper maintenance programs i.e. routine, preventive, reactive, emergency and reserve replacements,” says Hubert Rau of Rau Group in Munich, Germany. “The involvement of technical professionals is therefore very critical to the success of the community. Procuring the right service provider who can deliver the appropriate maintenance service to the community at the most competitive price is of vital importance to wellbeing and long term sustainability of the community.”
Finance is every organization’s lifeblood, and Community Associations are no less. The only significant difference between large commercial corporations and Community Associations is that the latter is not-for-profit; however, bills must be paid, and money must be collected.
Community Association Managers need to develop annual budgets to ensure enough money to run operations and sustain the Community Association. The association should use these budgets as a management tool to facilitate its effective operation. They should be used to:
- Plan community activities or maintenance issues
- Determine service charges
- Measure and control financial operations by comparing budget to actual performance
- Maintain quality of life. The budget reflects community operations, administration, and functions and helps ensure that quality of life is maintained to owners’ desired levels, if possible
- Limit surprises by planning the year’s activities and maintenance operations, so there is less of a chance for unexpected financial obligations to occur
- Look at the community’s needs and desires. There are both required and desired (optional) items in every budget. The budgeting process allows the Board to ensure all mandatory items are included, and all optional items have been fully considered.
Service charges are probably one of the hottest debate topics in Community Associations. There are several reasons for this, but it is primarily due to the owner’s lack of awareness of why they need to pay the charges and the developer and association manager’s lack of knowledge and transparency.
A service charge is the owner’s financial obligation to the association during a given period – usually one year. It is calculated on the owner’s share of common property or the entitlement shown on the title deed and based on an annual budget the association manager develops with the Board and approved by owners and in some cases by the regulators.
It covers the owner’s share of common expenses. It must be paid – either quarterly or annually – as most of the community’s revenue comes from contributions needed to manage and maintain it.
José Bonet, owner of Organización Bonet in Palma de Mallorca, Spain says, “A lot of owners have a misunderstanding about the concept of service charges. These charges are not really payments but contributions for the upkeep and maintenance of the common areas and elements in their own community. As an owner they are obligated to maintain not only their own personal property but also their share of the common property. Good maintenance of the whole community will always enhance the value of their property, not to mention keep it safe and secure.”
Another grossly misunderstood need in a Community Association is a reserve fund. These are known as sinking, replacement, or capital reserve funds in different locations, but the purpose is the same. It is an integral part of the annual budget and needs careful understanding.
The reserve fund consists of funds put aside (in reserve) to replace a community’s common property’s major components. Typically, money here is only used on a planned basis and based on capital assets and equipment lifecycles, such as replacing roof waterproofing or structure after its warranty period, central cooling plants, elevators, swimming pools, tennis courts, and other such large ticket items. Funds from the reserve should never commingle with the general fund used for day-to-day operations.
Reserve funds are typically calculated from a percentage of the total budget but should actually be based on a reserve study carried out by professionals. The reserve study is essentially a budget planning tool, where the association can clearly understand capital assets and equipment status and prepare for inevitable future expenses.
With the collapse of Champlain Tower South, in Florida, USA, not only has the local condominium industry felt the shockwaves, but similar concerns have reverberated all over the USA and the world. Politicians, local leaders and government officials at all levels have started deliberating on what changes to the local, state, and even federal laws and regulations need to be enacted to prevent a similar calamity from recurring.
Luis Eduardo Garcia, owner of Inmobiliaria Valenzuela in Bogotá, Colombia, says, “If one must learn lessons from this tragedy, suffice to say there are many. One being the absolute importance of having adequate funding for reserves, the other being the involvement of the independent reserve specialist to accurately calculate what they must be and for buildings that are more than thirty years old, the Board should consider investigating the possibility that other experts, such as a structural engineer, may be needed for the long-term viability of the reserve components.”
Customers are essential for every business to survive; Community Associations are no different. In fact, the customer is the most critical asset in a Community Association, not just the built environment itself. As such, customer service, experience, and happiness are not just buzzwords, but a reality in this profession and values such as honesty, transparency, and empathy should be hallmarks of those who serve in this capacity.
Francisco Martínez, who heads Fincas Cholo based in Lugo, Spain, “We Community Association Managers are here to serve our customers and these customers include those who purchased the units in the community, those who reside in them and those that work in them. Whatever we do, we must put the customer in the centre of it. Every plan, policy, process or protocol we prepare must be built around what our customers need and desire.”
A significant part of the Community Association Managers duties is compliance. The Community Association is an entity governed by both documents and local laws and statutes. These documents commonly called Governing Documents dictate how a community is to be maintained and managed while the regulatory bodies or laws of the jurisdiction mandate certain actions to take place annually or periodically to keep the association in good condition and protect the properties and lives of those who own, live or work in them.
According to Teyra Ehlers Bilgray, CEO and Founder of Administra PTY, Panama, “It is incumbent on the Community Association Manager to be well versed in the laws of the land to ensure that the Community Association is always looked after properly and value is enhanced over time. Property owners expect this of their managers. There are several courses available by the Community Association Institute that can provide aspiring Community Association Managers education and expertise in various areas of the business and there is a course that is focused on governance and compliance. To meet all these needs, everyone in the profession needs to attain a high level of education, experience and professionalism to be able to fulfil not only the needs and desires of unit owners and residents but also the legal and regulatory requirements.”